There is so much talk about the housing market bottoming out, and I want to give some perspective on what to watch for. I hope this helps.
UPCOMING (PUBLIC) SPEAKING GIGS:
3/06/23 Matt the Mortgage Guy YouTube Live 3pm PST
3/09/23 Matt Gouge Event TBD
3/10/23 PCAR Market Update Lunch & Learn
3/28/23 Downtown Regional MLS meeting
4/1/23 NAA Conference in Sacramento
WATCH FOR TWO DIFFERENT BOTTOMS:
The previous housing downturn had two different bottoms. There was a bottom for sales volume and a bottom for prices. Can you see that on the visual below? The concept of two bottoms comes from Bill McBride of Calculated Risk, though he talked about watching for a bottom in new home sales and a bottom for residential investment. For local markets, I recommend watching for a price and volume bottom (may not happen at the same time).
VOLUME GOT TO A BOTTOM FIRST
It took just over two years for volume to reach a bottom after the peak in 2005, but it took another fourteen months after the volume bottom for the price decline to slow way down in Sacramento County. Technically, prices declined for multiple years after volume hit its low point, but it was only modest after 2009, which is why I said “near price bottom.” Keep in mind there was a federal buyer tax credit introduced in 2009 that supercharged the housing market and basically helped slow the decline at the time.
VOLUME WILL IMPROVE AS AFFORDABILITY GETS BETTER:
According to the California Association of Realtors, 28% of households can afford a median-priced home in Sacramento County. In light of this, it’s not a shocker to still see subdued sales volume (missing about 40% of buyers). The truth is we will get more buyers back as affordability improves.
Here are a few other local counties. The trend is basically the same, which reminds us all ships tend to rise and fall with the tide.
HANG IN THERE REAL ESTATE FRIENDS
Some quick thoughts and encouragement for real estate friends. I’ve been having so many conversations lately behind the scenes with people who are having a hard time in this market. I just wanted to say you are not alone. And you can’t control the market, but you CAN control your mindset.
We are in the midst of the spring market heating up right now, but we need time beyond spring to understand the longer-term housing trend (thanks Captain Obvious). Everyone has ideas about the future, but let’s be cautious about interpreting spring seasonality as a bottom. Time will tell. Let’s keep watching by the week.
The truth is year-over-year stats don’t tell the full story of the market right now. Someone might say, “No biggie, we’re down 5% from last year.” That’s technically true, but it fails to recognize that five percent from one year ago is NOT the same thing as five percent from the height of spring in 2022.
I hope this was helpful.
Questions: Do you think the housing market has bottomed out? What are you seeing right now in the trenches of escrow? I’d love to hear your take.